The Global Financial and Economic Crisis and the South: Impact and Responses

May 17-18, 2012Dakar, Senegal

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In 2008, the world witnessed one of the most severe financial crises since the great depression of the1930s. The global financial crisis that started to show its effects in the middle of 2007, and runninginto 2008, led to the fall of stock markets, and the collapse and eventual demise of large financialinstitutions in the United States and Europe. In response, governments in even the wealthiest nationshave had to come up with rescue packages, including the bailout of their financial systems. Due tothe critical role banks play in the current market system, crises in the larger banks led to a situationwhere not only the wealthiest, but literally everyone else, suffered,. With a globalized system, acredit crunch rippled through the entire real economy very quickly, turning a global financial crisisinto a global economic crisis. What many saw as a temporary imbalance of the international financialsystem eventually became a real crisis of the world capitalist system; or, as Samir Amin puts it, “partof the unfolding of the long crisis of an ageing capitalism”. With the financial meltdown, all other dimensions of the crisis – the energy crisis, the food crisis and the environmental crisis – of thesystem came to the surface.

The most important development that took place in the wake of the banking crisis is the transmissionof the crisis to the rest of the economy, resulting in a more general and deeper economic crisis. Thecritical issue here is the onset of recession. Economic problems emanating from recessions and crisisusually leave social and structural impacts on important sectors of the society. They affect livingstandards and constrain the requirements of people in those sectors. The social repercussions of theglobal financial crisis are also widespread and often lead to deterioration in the living standards ofmillions of people, especially in poor countries. The Food and Agricultural Organisation (FAO) hasindicated that close to 1 billion people are affected by hunger. Also, the International LabourOrganisation (ILO) has reported that more than 200 million people are unemployed.Even in countries or regions that have shown some signs of positive development, recovery fromglobal financial crisis remains an enduring challenge. Many Asian nations have witnessed rapidgrowth and wealth creation in recent decades. This has led to enormous investment in Westerncountries, as well as increased foreign investment in Asia, mostly from the West. However, this crisishas shown that in an increasingly inter-connected world, there are always knock-on effects and, as aresult, Asia had more exposure to problems stemming from the West. Asian products and servicesare also demanded worldwide, and a slowdown in wealthier countries means increased chances of aslowdown in Asia, resulting in job losses and associated problems such as social unrest. Persistentproblems related to economic crisis include high unemployment, more debt and low growth indeveloped countries, as well as greater difficulties in having access to finance for developingcountries. In addition, food prices in 2011 were volatile and nearly reached their 2008 peak, andmillions of people in the Horn of Africa and in the Sahel region are in urgent need of assistance as aresult of devastating drought, conflict and displacement.

The consequences and effects of the economic crisis have varied from one country to another, andfrom one region to another, depending on a whole range of factors, including financial capabilitiesand demography. For instance, in the Arab world, these negative effects, along with other factors,have played a major role in the political events that have swept the region since 2010.In the first years of the economic crisis, some scholars argued that because of their weak integrationwith the rest of the global economy, African countries might not be affected by the crisis, at leastinitially. Recent developments have, however, shown that earlier hopes were short-lived. Africa’seconomic growth plummeted because of the world economic downturn. The International MonetaryFund (IMF) had predicted that growth in sub-Saharan Africa would come down to 1.5% in 2009, afigure that is far below the rate of population growth. Africa’s largest economy, namely South Africa,has entered into recession for the first time since 1992, due to a sharp decline in the keymanufacturing and mining sectors.

Despite the fact that Africa currently has the world`s lowest shares of regional trade and investment,there is a strong possibility that the imbalance in the capital flow in the last couple of years hasaffected the continent in terms of what it has been receiving from outside, in terms of both officialdevelopment assistance (ODA) and foreign direct investments (FDIs). The IMF has promised moreloans to the region, this time round with less stringent conditionalities, which in the past have been very detrimental to Africa. In the long run, it can be expected that foreign investment in Africa will godown as the credit squeeze takes hold. In spite of such a situation, African countries may face anincreasing pressure for debt repayment. As the crisis gets deeper and the international institutionsand Western banks that have lent money to Africa need to shore up their reserves, they coulddemand more debt repayments. This could, in turn, cause further cuts in social services such ashealth and education, which have already been reduced due to the impact of the crises and thedismal policies of the previous eras.

Much of Latin America depends on trade with the United States, which alone absorbs half of LatinAmerica’s exports. Then comes the question: How does this region feel the effect of the globalfinancial and economic crises, more particularly the financial crisis in the US? Furthermore, concernsof fragmentation are increasing, because a number of South American countries are raising tradebarriers against their neighbors as the crisis starts to bite harder.There is a need for countries in the South to examine the available options for national and regionalredress on each aspect of the economic crisis and to come up with appropriate policies. Thechallenge remains how to find appropriate and differentiated responses to the disastrous impact ofthe crisis, while keeping in mind the global common interest of the South. Only some policymeasures can be taken at national level, especially if the country is too small to rely on boostingdomestic-led growth. Given this situation, region-specific and South-South measures are important,of which reforms, actions and cooperation at the international level are the most critical ones.An analysis of the impact of the financial and economic crises on the South is a pre-condition fordefining development policies. The analysis should be holistic in the sense that it has to incorporateall dimensions that might play a role, namely political, social and cultural dimensions. The conferencewill therefore encourage papers on alternative thinking on the financial and economic crisis. In thisregard, a relevant research question, from the point of view of the countries of the South, relates tothe role of the state in overcoming the social crisis which has been worsened by the global economiccrisis. A holistic analysis of the impact of the crisis should look at its impact on poverty and issuesrelated to social exclusion, the reponses from the social movements, as well as the issue of globalgovernance.